The FDR Framework is the backbone for a 21st century financial system. Under this framework, governments ensure that every market participant has access to all the useful, relevant information in an appropriate, timely manner. Market participants have an incentive to analyze this data because they are responsible for all gains and losses.

Tuesday, July 23, 2013

Bankers use ignorance to avoid "lynch mob" while pulling big bonuses

The Guardian reports on the Archbishop of Canterbury's struggle with the bankers' use of ignorance.

On the one hand, bankers used ignorance to avoid the "lynch mob" trying to assign blame.

On the other hand, this very ignorance of what was going on calls into question what bankers were paid for if they were not responsible.

A benefit of requiring the banks to provide ultra transparency and disclose on an ongoing basis their current global asset, liability and off-balance sheet exposure details is that it ends willful blindness and makes readily apparent the individuals who should be blamed.

There is a reason that sunlight is the best disinfectant of bad banker behavior.

The archbishop of Canterbury, Justin Welby, has described blaming individuals for the banking crisis as "lynch mobbish".

But the archbishop, a member of the parliamentary commission on banking standards, also said top bankers had avoided responsibility by ensuring they did not know what was going on in their banks.

"Certainly one of the trends that has been very unfortunate, to put it mildly, is that in some financial services companies there was a clear policy of not telling the top people. They made sure they weren't told things, because then they could plead ignorance, and that's just unacceptable.

"But this business of somehow saying that one individual bears the whole blame as opposed to simply the accountability – it feels lynch mobbish."...

It also accused senior bankers of evading their responsibilities by closing their eyes to what was happening on the front line.

About this blog

A blog on all things about Wall Street, global finance and any attempt to regulate it. In short, the future of banking and the global financial system.

This blog will be used to discuss and debate issues not just for specialists, but for anyone who cares about creating good policies in these areas.

At the heart of this blog is the FDR Framework which uses 21st century information technology to combine a philosophy of disclosure with the practice of caveat emptor (buyer beware).

Under the FDR Framework, governments are responsible for ensuring that all market participants have access to all the useful, relevant information in an appropriate, timely manner. Market participants have an incentive to use this data because under caveat emptor they are responsible for all gains and losses on their investments; in short, Trust but Verify.

This blog uses the FDR Framework to explain the cause of the financial crisis and to evaluate financial reforms like the ABS Data Warehouse.